How state-owned companies can accelerate sustainability in the Middle East and North Africa

Middle East and North African (MENA) countries are often criticized in climate change discussions for outsized emissions generated by the energy sectors. Such arguments ignore that the region’s oil and gas producers play a pivotal role in global energy demand and supply. The consequences of rising temperatures will also hit their region harder than most others, as growing desertification, dropping water tables and increasing heatwaves threaten the habitability across the region.

A better way of framing the discussion would be to point out that any solution to climate change must run through the Middle East. The start of change in the region is visible with the ambitious net zero commitments by Saudi Arabia, the United Arab Emirates (UAE), Oman and Bahrain. With Egypt and the UAE hosting consecutive UN climate conferences (COP27 and COP 28), the region is positioning itself in global climate discourse.

Crucial to meeting regional governments’ emission reduction ambitions are MENA’s state-owned enterprises (SOEs), which account for a significant share of the region’s economic activity. Taken alone, the top 20 SOEs (by emissions) in MENA have emissions equivalent to the entire country of Canada, which means they also have the scale to accelerate sustainability action in the region by themselves. Moreover, there are signs that they are doing precisely that.

In a previous blog post for the World Economic Forum, Bain & Company investigated the corporate climate commitments of 200 public and private MENA companies representing nearly 80% of their countries’ stock market capitalization and the largest firms in hard-to-abate sectors such as energy and steel. The findings highlighted the areas of improvement. MENA companies, for example, lag behind peers in other global regions in setting net zero targets, making disclosures to the carbon disclosure project (CDP) and having science-based target initiative (SBTi) approved targets.

We have since deepened our research to focus on the 20 largest MENA state-owned emitters that disclose their scope one and scope two emissions. These are companies of huge scale, such as energy giant Saudi Aramco, Emirates Airline – a top 10 global airline – and Saudi Electricity Company, which is among the world’s top 10 power companies by generation capacity.

Given their size, many of these companies constitute a sizable chunk of their national gross domestic product (GDP). That gives them an outsize influence on the direction of corporate sustainability action in the region for two reasons.

First, raw numbers: a decisive drop in emissions from any one of these companies will have a notable impact on emissions from the region as a whole.

Second, stature: Many of these SOEs are national champions and often, other companies look to them for leadership and will follow their example. As such, MENA SOEs offer a crucial lens through which to assess the progress of companies in the region on climate change and the sustainability agenda.

When we looked at the climate commitments of this subset of companies, we found that MENA SOEs are ahead of other businesses in the region. Among MENA SOEs:

In the last two years, we have witnessed significant momentum towards setting national decarbonization targets in the region. Now, nearly 60% of the region’s emissions are covered by net zero ambition representing (based on the nine largest economies of the region) and state-owned companies will be essential to meeting those targets given their size and stature.

Several SOEs in the regions have already made eye-catching investments in sustainability initiatives. Saudi Aramco, for example, is investing in one of the world’s largest carbon capture and storage plants, while the UAE’s Masdar is involved in building the world’s largest concentrated solar power plant.

In our subset of the largest 20 SOE emitters, nearly 90% have plans for renewable energy and more than 80% have adopted energy efficiency measures. Most interestingly, 50% of them have started working on new pathways such as clean hydrogen and carbon capture, utilization and storage and 30% have plans for sustainable aviation fuels.

However, MENA SOEs can still be much more ambitious when it comes to reporting and disclosures. We found only 30% of this group has adopted a net zero target, 20% have set a roadmap for it and none have aligned the roadmap with SBTis. Similarly, only 5% have institutionalized CDP disclosures.

Governments can play a part in setting ambitions and in the MENA region, increasingly, they are. However, companies undertake most economic activity and thus, the private sector will ultimately need to bear the responsibility of delivering sustainability action. In the MENA region, the 20 largest SOEs are taking the lead in some areas but must still deliver more consistent emission measurement, disclosures and target setting. Going forward, they can help smaller private and public companies in the region make rapid progress by:

The Forum, in its partnership with Bain & Company, is working with stakeholders in the MENA region, including large SOEs, to support such change as part of the Forum’s Leaders for a Sustainable MENA (LSM) initiative. Together we are building a coalition of climate-conscious and change-hungry partners who want to combat climate change and bring climate adaptation to the forefront. As the world moves towards COP28, LSM aims to create a platform of dialogue where cross-border public-private partnerships can grow to deliver a net zero transition for the MENA region.